On September 2, 2010, U.S. EPA issued a proposed rule finding that 13 states must revise their federally approved State Implementation Plans, or "SIPs," to implement Prevention of Significant Deterioration, or "PSD," permitting requirements for stationary sources of greenhouse gases (such as factories), and seeking comment on whether SIP revisions are needed for additional states. In a companion rulemaking proposal, EPA also proposed a federal implementation plan to be used to implement greenhouse gas PSD requirements in any state that has not established such authority as a matter of state law by December 1, 2011.

EPA derives its legal basis for regulating greenhouse gas emissions under the federal PSD program from a series of prior rulemakings, including actions now commonly known as the Endangerment Finding, the Johnson Reconsideration Memo, or "Triggering Rule," and the Light-Duty Motor Vehicle Rule. Taken together, EPA believes these actions make greenhouse gases "subject to regulation" under the Clean Air Act and therefore trigger the PSD program for stationary sources. However, rather than applying the Act's PSD emission thresholds (a potential to emit 100 or 250 tons per year), in what it refers to as "the Tailoring Rule," EPA chose to apply a set of significantly higher thresholds (75,000 to 100,000 tons per year) and to phase in PSD permitting for greenhouse gases, starting in January 2011. The Tailoring Rule is now the subject of multiple legal challenges before the U.S. Court of Appeals for the District of Columbia Circuit.

Although EPA's regulations establish presumptive federal requirements, most states implement the Clean Air Act's PSD program via state statutes and regulations collectively known as the state's SIP. The Tailoring Rule amended federal PSD regulations but could not amend the implementing regulations of these individual state programs. While EPA believes many states will be able to implement PSD requirements for greenhouse gases under their existing SIP statutes and regulations simply by adjusting their interpretation of the phrase "subject to regulation," this approach, like the Tailoring Rule, is likely to face legal challenges.

In its September 2 proposal, EPA found that 13 states—Alaska, Arizona, Arkansas, California, Connecticut, Florida, Idaho, Kansas, Kentucky, Nebraska, Nevada, Oregon, and Texas—lack authority under their current SIPs to implement greenhouse gas PSD requirements in some or all of the state. For these states, EPA plans to issue a "SIP Call" requiring submission of revised SIPs by December 1, 2010.

Any state lacking authority at that time to regulate greenhouse gases under an approved PSD SIP will have 12 months to submit a revised SIP to EPA for review and approval. If a state fails to submit the necessary SIP revisions by the 12-month deadline, EPA plans to impose a Federal Implementation Plan, or "FIP." EPA does not intend to issue any state-specific FIP proposals, so the September 2 proposed rule may represent the only opportunity for facility owners and operators to comment on a PSD FIP for greenhouse gases in their state.

As proposed, each FIP would mirror the PSD applicability provisions already found in federal regulations, including the Tailoring Rule's phase-in approach, with slight adjustments to limit the FIP to greenhouse gases. EPA would be responsible under the proposed FIP for directly acting on the greenhouse gas portions of all PSD permit applications, while state regulators would retain authority over the non-greenhouse gas portions. The FIP would remain in place until EPA approves a revised SIP. EPA believes this approach will avoid business interruptions for sources in states that are unable to develop and submit SIPs before greenhouse gas permitting requirements take effect on January 2, 2011 under the Tailoring Rule. Still, avoiding lapses in state PSD authority will depend on several variables, including how soon the state submits its revised SIP and how long EPA takes to either approve the SIP or issue a FIP.